I believe the RBA was, on balance, correct to hold rates today – but it must have been a tough call.
I would suggest that the most prudent action from tomorrow’s Board meeting is for the RBA is to keep rates on hold.
While the decision to cut the cash rate by 25bp to 0.75 percent was priced into the market as a near certainty, the factors influencing the outcome were certainly not straightforward.
The RBA was right to keep rates on hold at 1 percent today and leave any further cuts till later in the year.
By cutting rates, the RBA is sending a signal to the market, to politicians and to the community at large, that the Australian economy is not firing on all cylinders
The sluggish GDP figures, particularly the weakness in household consumption, shows the RBA would have been justified in cutting cash rates faster.
It seems inevitable the Reserve Bank of Australia will drop the cash rate in its meeting next week, and possibly again later in the year.
So, the Reserve Bank of Australia resisted growing calls to cut interest rates yesterday. They were right to do so.
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